What’s Next for the Vacation Rental Market?
Before the pandemic, word on the street was the vacation rental market was impervious to fluctuations. It was certified gold, and nothing, outside of a catastrophic act of God, could rupture the ever-expanding bubble.
Well, God answered the call and delivered COVID-19, effectively turning the rental property industry on its head, leaving vacation rental management companies and owners reeling, wondering what’s next.
However, if 2020 showed us a lot can change in a year, wiping everything out in one fell swoop, 2021 shows us the same can happen in reverse. With the implementation of vaccines, and tourism showing signs of life again, there’s hope for the vacation rental market.
The future is no longer murky, but what aspects of the vacation rental market did COVID-19 affect, and what will companies have to do to restore this industry to the promise it once held?
The Impact of COVID-19 on the Rental Property Management industry
COVID-19 brought international travel to a screeching halt in January 2020, and it still hasn’t recovered. Though there is light at the tunnel, let’s take at the ripples COVID caused within the global travel industry.
Global Booking Volume Plummeted
Airbnb’s data showed a whopping 42% drop in volume in March 2020. If that wasn’t bad enough, in April, it dropped 72% compared to 2019.
The summer saw some recovery, but the second wave of coronavirus hit and sent the market spiraling. Thus, the market never fully recovered by the end of 2020.
Cancellations and Booking Altercations Skyrocketed
The drop in volume underscored the record number of cancellations and booking altercations that occurred in 2020. In April, the industry was at all-time lows for bookings. Shockingly, Airbnb released there were more cancellations in March and April than there were bookings.
Thankfully, the number of cancellations improved toward the end of 2020, decreasing to around two out of ten bookings being canceled. Still, the cancellation flexibility is critical for travelers in 2021, despite there being signs of improvement for travel safety.
Average Nightly Rates Increased
Given all the volatility, it might surprise you to learn that the nightly rate for Airbnb increased in 2020. Hosts decreased their rates by as much as 60% at the beginning of the pandemic, but by June, they realized that doing so wasn’t sustainable.
Occupancy rates continued to drop, thus driving pricing up in an attempt to keep steady cash flow. The average nightly rate reached over $200 in July and 2020’s year-over-year rate was higher than 2019 for the rest of the year.
Vacation Rental Revenue Dropped
According to Raleigh property managers, vacation rentals lost 80-100% of their revenue in April 2020. The drop was expected, however, the number is still astronomical, and the effects of such a steep drop have presented their own set of challenges.
What Do Vacation Rental Property Owners Need to Do in 2021
Given all of these stats, it will come as a surprise to learn that the vacation rental industry had positive aspects in 2020. However, with Sonder raising over 170 million and Vasca raising over 100 million in 2020, there’s reason to be hopeful. Additionally, the pandemic might have solidified the vacation rental industry’s supremacy over the hotel industry.
Yahoo released a report that 62% of respondents want outdoorsy locations, and 82% of families already have a vacation planned for 2021, a boon for property owners or rental property managers hit hard by the pandemic. But what do rental property owners have to do to ensure they maintain their momentum.
Understand What the 2021 Traveller Wants Out of Their Rental
The 2021 tourist wants to see specific things from their vacation rental provider. These elements come down to the traveller’s experience and exploration.
Experience: retaining the guest
● Comfort that stays on par with the hotel experience.
● Safety and security have to remain of utmost importance.
● The amenities a property contains will be differentiators.
● Local culture is another differentiator that must be leveraged.
Exploration: tenant outreach
● Competitive pricing with hotels.
● Thorough understanding of health and safety demands for guests.
● Understanding of unique inventory in markets that have demand
To keep the vacation property momentum moving forward, owners must adapt to the changing environment and continue to respond to the areas where hotels have superiority.
What’s In Store for the Vacation Rental Property Market?
There are quite a few changes ahead for the rental property market. The following examples represent a few of the potential shifts in the vacation rental property industry.
Mid-Term Rentals
One of the changes on the horizon in the near future is the shift to more mid-term rentals. Mid-term rentals are rentals over 30 days.
However, lockdown statistics have somewhat skewed these statistics, and the shift might not be as prevalent as the 2020 data shows. With the convenience and flexibility that vacation rental properties provide, this shift still might be an integral component of the industry’s development.
International to Domestic Travel
Countries are still on lockdown and there’s no telling when these sanctions will lift. In the short-term, vacation rental property managers will have to shift from international travel to domestic travel accommodations. If short-term rental hosts are smart, they will take advantage of this opportunity, targeting more local and regional guests.
Migration from Short-Term Rentals to Long-Term Rentals
With the rise in remote working, more short-term rentals are being rented out long-term by people who can work remotely. Most of these long-term rentals carry contracts of 2-3 years on them, so the shift appears to be significant.
Down the road, this shift will result in pent-up demand for short-term rentals, which will lead to increased occupancies for the short-term rentals left in the market. Until demand catches up, however, vacation rental owners will have to look for innovative ways to increase their occupancy and revenues.
Looking Forward to the Future
The road to recovery has been gradual, but as vaccinations get widely distributed, hope appears to be on the horizon. There’s no doubt the COVID-19 pandemic will change the vacation rental management landscape, but it will most likely be for the better.
The pandemic showed that the vacation rental industry has a leg up on the hotel industry because of increased privacy and flexibility. However, vacation rental management companies and owners have to make sure they remain on par with hotels’ guest services in the future.
Additionally, the deeper trend you could see from the pandemic is the shift from short-term rentals to long-term rentals. Though time will only tell, an increasingly remote workforce suggests that people will favor mobility rather than short-term vacation rentals, opening a new sector of the market. How fast this sector grows and how it changes the market as a whole still remains to be seen.
- by Matt Watts
